April 1, 2003 -- Cogent Communications said yesterday that it is in breach of loan covenants and may be forced to file for bankruptcy if it is unable to renegotiate its agreement with lender Cisco Systems Capital.
Cogent revealed the default in a filing with the SEC. The company said its revenues for the fourth quarter of 2002 had fallen short of minimums required by its credit facility with Cisco.
The Washington, DC provider of connectivity and colocation said it is in "active discussions" with Cisco to restructure the loan. Cisco will not fund an additional $25 million Cogent had been expecting this year, and the filing made it clear that the company's fate lies entirely in Cisco's hands.
"This default permits Cisco Capital, if it wishes, to accelerate and require us to pay the approximately $262.7 million we owed Cisco Capital as of March 28, 2003," Cogent stated in the filing. "Should Cisco Capital accelerate the due date of our indebtedness we would be unable to repay it.
"If it accelerates the indebtedness, Cisco Capital could make use of its rights as a secured lender to take possession of all of our assets," the filing added. "In that event we may be forced to file for bankruptcy protection."
The immediate impact to Cogent is a loss of additional funding from Cisco, which was to fund $25 million in five monthly installments between May and September.
Cogent said the funding had been included in its business plan.
"As a result of the default, we are no longer entitled to these funds," Cogent said. "We do not anticipate that Cisco Capital will loan additional working capital to us." The company has $42.8 million in cash or cash equivalents, according to the SEC filing.
Cogent's revenue declined from $16 million in the third quarter of 2002 to $13.8 million in the fourth quarter, caused primarily by cancellations from customers acquired from PSINet earlier in the year. Those cancellations more than offset the new business acquired by Cogent in the quarter.
For the full year, Cogent lost $91.8 million. The company has 204 employees and leases about 335,000 square feet of space for its headquarters and network operations.
Cogent shares lost 20 percent of their value in early trading on the NASDAQ stock exchange, falling 10 cents to 40 cents per share.
Cogent Communications is a Tier 1, facilities based, all-optical ISP focused on delivering ultra-high speed Internet access and transport services to businesses in the office market and to ISPs. The company is based in Washington, DC.